Euro Drops to 11-Month Low

The euro approached a record low for the year on Wednesday as Italian borrowing costs shot up at a bond auction and an economic report pointed to evidence that a recession is looming for Europe.

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Last Friday, European leaders announced measures to shore up market confidence in the euro, rolling out more money for a bailout fund and stricter rules governing public finances.

But confusion over how and when the measures will be implemented, together with the European Central Bank’s refusal to increase its bond purchases, left sentiment close to where it was before a summit in Brussels last week offered a brief burst of hope.

In the foreign exchange market, the U.S. dollar has been the main beneficiary of Europe’s debt crisis, gaining almost 5 percent against the basket of currencies used by the Intercontinental Exchange to compile its dollar index.

Interest in the euro has faded among money market managers since the ECB last week cut its main interest rate target, narrowing the differential that short-term euro-based assets enjoy over dollar assets.

In European trading, the euro dipped as low as $1.2994 on Wednesday, not far above its 2011 closing low of $1.2907, set in January. Italy, the world’s seventh-largest economy, sold 3 billion euros of five-year bonds today, paying a 6.47 percent yield, up from 6.30 percent last month.

Meanwhile, the German government sold 4.2 billion euros of two-year notes at a 0.25 percent yield, the lowest ever, suggesting that investors are fleeing for the assets they perceive as being most secure.

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